The Uncertainty Principle in Quite-Certain Economic Opinion

When examining a system and using controls and variables in order to reach a scientific conclusion, it is crucial that the system itself does not change.  For instance, if we received a machine from outer space and knew that it operated under three rules: 1) turn red balls to blue, 2) blue balls to yellow and 3) yellow balls to red; and we wanted to examine how this machine would react if we submitted a red and yellow striped ball. We could not reliably reach a conclusion if one of the known rules changed, even slightly.  We’d have a new system.  There have to be constants.

This idea is a pillar of medical research.  One constant that researchers rely on for every experiment—give or take some relatively small physical trait differences—is that their groupings of test subjects will behave and react in replicable fashion.  If we are testing the effects of a specific drug on influenza (and we have ruled out the possibility of immune disorders and related issues), scientists will assume that the basic mechanisms of immunity—antibody creation, bone marrow, white blood cells, the spleen, circulation, sneezing, etc—are behaving under the same machinery.  The researchers operate under the notion that people are not evolving mid-experiment; the mechanics and chemistry of the body will be relatively unchanged and allow us to reach a sound, replicable conclusion.

So for this reason, I still have trouble taking any economist, no matter how decorated or red-faced, too seriously. Paul Krugman, for instance, has become somewhat of a golden idol for liberal ideologues.  “He says we need more government spending!  He won the Nobel Prize!”  Same went for conservative ideologues and the word of Milton Friedman.   “He says the free market will take care of everything!  He won the Nobel Prize!” It’s not that these men aren’t painfully smart or exceedingly rational, it just seems borderline-ridiculous that they wouldn’t hedge their beliefs with, “or, I dunno, at least that seems kinda likely.”  Of course tenure, the research ladder and the interpretive press prevent this.

Like any scientific system, world economics and trade are made up of a litany of variables—GDP, unemployment, interest rates, exports, imports, exchange rates, etc—that are totally measurable.  In this respect, the science of economics is quite beautiful.  You can sum up very messy situations with tidy figures.  But, those variables live in a system changing too rapidly to be understood and studied.  Unless the light of day still hurts your eyes, you know the economy is moving towards globalization.  China and India are skyrocketing; despite cultural bumps and bruises the EU is slowly coming together; Africa is waking; the US is fledgling; South America is simmering and on and on.  These are the organs of the world body; they are changing every day.  If we froze them all in time, after a while, we could reach some real conclusions on the future.  But it would only be for that moment; a year later those organs would have assumed different roles.  Its like Heisenberg’s famous Uncertainty Principle: you can only measure velocity or position, not both at the same time.

The velocity, the evolution, the evolving system of our world is in the politics.  That’s why we can never be so sure; we oh-so want to be, but we can’t.  The laws and mechanics of experimental replicability change every day.  The body politic, ideals, legislation and governments are evolving too fast, and each operates with another in increasingly intertwined fabrics.  Say tomorrow (very hypothetically and simplistically) Mexico legalizes all drugs; now there are more jobs and fewer illegal immigrants to the US; doesn’t that decrease in competition immediately throw a question at all economists’ predicted rates of unemployment in the United States?  Sure, they can adjust, but whatever predictions we just wasted our time debating are out the window.  (The body just decided that blood doesn’t flow to the nose anymore; start our influenza drug tests over!)

This is not to call the entire field of trade and market economics into question; it is to call into question the fierceness and assuredness of opinions and dogma that surround it. The sands of the world are shifting too fast.  To slam a fist and say, “We should have been out of this recession by now!” or “It will be over by next year!” is just plain idiocy.  There is no way to know, Nobel Prizes and all.

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Follow Caleb at www.twitter.com/calebgarling

Caleb Garling lives in San Francisco and wrote The St George’s Angling Club, available at

www.calebgarling.com

 

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3 Responses to The Uncertainty Principle in Quite-Certain Economic Opinion

  1. Andrew says:

    Good thoughts. One of the things about Mr. Heisenberg’s proclamation is it really says the observer actually messes around, just by observing, with the thing being observed. So it seems that when the Delphi Oracles of economics – right or left – toss out a proclamation of their own supporting their view….even that cranks the tiller a little bit and markets react, some kids college funds tip to tanking, some short sellers now buy their 3rd home in the Hamptons, and so on. What to do…..

  2. John says:

    I don’t know, Caleb. This seems to be mostly an essay about style of argument in economics: humility is good, strong statements are bad.

    I’m much more interested in the content of the actual reasoning. It seems to me that Krugman was absolutely correct that we needed a stimulus 2-3 times larger than what we got, and one directed as much or more at the middle class and the unemployed than at the financial sectors.

    There are logical arguments for that case. And there are logical arguments, today, for an immediate and strong WPA-like program. The arguments against such actions either confuse short term actions with medium and long term goals, or they are purely political and expedient…and don’t actually make any economic sense at all.

    I personally find Krugman reasonably humble. But he could just as well be an intemperate son-of-a-bitch. Who cares? What’s important is his analysis – not his style!

    Finally, there is never enough info to make a decision with 100% certainty. But that doesn’t mean there aren’t better or worse paths to choose from. The trick is to make the choice with a high probability of success.

  3. Jacob H. says:

    Good post. I think that you are quite right that the fundamental problem for economics is that the objects it is studying–individuals making choices–cannot be directly observed in general, and instead can be known inferentially from measures like GDP, unemployment, interest rates, and so on, that each are highly dependent on the immediate social and institutional context. So for example, we treat unemployment as if 10% in 2010 means the same thing as 10% in 1920, but of course it doesn’t, since far more women are working now than then, far more people are in school and far more people are retired. The result is that far fewer men are working than in 1948, and far more women, and the unemployment rate itself tells us relatively little. Yet economic models will take it as a homogeneous dependent variable, as real as an acceleration that comes as a result of a net force in physics or the protein that results from a specific nucleotide sequence in a cell. Needless to say, individual economists may or may not be aware of some of the epistemological difficulties of their profession– but as a whole, the kinds of claims they make are often overblown and subject to deliberate and accidental misconstrual.

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